The world, at least the financial one, seems to be obsessed with trashing Apple for no discernible reason, but they are wrong. Any unbiased observer who understands the tech will tell you that this view is self-serving, but somehow they seem immune to reason.
It started with a production problem followed by a supply chain check or two last year, and has since become elevated to the highest rank of Wall Street cluster-think. One person said it so now they all have to say it or risk looking silly. Worse yet, they might be perceived as actually doing the work they are supposed to be doing while thinking for themselves. The problem is that every bit of information SemiAccurate can find points the opposite direction on Apple.
All the technical facts we can dig up, as opposed to the financial indicators that the analyst set looks at, appear diametrically opposed to the financial data points. We think that contrary to the prevailing financial outlook, Apple will do very well this quarter. Why we think this is the important bit, it is based on technical understanding, not the need to reinforce the prevailing “wisdom” that drives churn, page-views, and group-think.
Apple Stock chart from Yahoo Finance for the previous year
The downward spiral in confidence about Apple’s future can be traced to two things, the early production problems and some supply chain checks in late 2012 or early 2013. The early production problems were just that, problems that slowed production but were eventually overcome in the normal way. Once these were resolved production quickly ramped up to the intended rates and the post-launch scarcity became a distant memory.
The sales numbers that came out in 2H/2012 were pretty grim if you are Apple. Their flagship part was unavailable, pent up demand was not being sated, and older, presumably lower margin devices made up an increasing proportion of the sales mix. Sales went down, margins went down, and Wall Street was in a tizzy. Anyone not quite as slavishly tied only to numbers will look at sales, the mix, and the reasons why and say, “Well duh, what did you expect?”. Not Wall Street though, this had to signal the beginning of the end. One guy said it, the next has to be more dramatic to get headlines, right?
SemiAccurate sees two possibilities, when production based supply restrictions eased, the pent up demand would be sated and sales would pick back up to where they were or the customers would have moved on to other devices that are not made by Apple. This isn’t exactly a hard piece of logic to follow, potential customers either waited or they didn’t wait, those are the two possibilities.
When builds were scaled back or halted, the supply chain was understandably a bit lagging, they were expecting the usual flood of orders that accompany an iThingy launch and geared up for that. Components were stockpiled, the lines to build them were long ago upgraded, and everything was delivered in quantity up to and after the time that the plug was pulled. When builds resumed at a lower pace, the component warehouses were overflowing with parts and that took time to bleed down. The slow ramp back to intended production rates didn’t make matters any better for component suppliers either, there was lots of previously made components at the ready. A lack of a clear and definitive cause, much less an easy fix for the production problems only complicated matters.
That lead in to the dark period we call self-reinforcing component checks misdirection. One firm after another came out and said something akin to the sky is falling for Apple because some part supplier got orders cut. Then came the vultures who one after another confirmed that the same sky was falling, but every single one seemed to indicate that it was falling faster, harder, and more completely than the last. This is how it works, one data point is fine, but the next has to be bigger and more dramatic or it is written off. One other problem with Wall Street is that they all read each other, feel compelled to get their personal name in bigger fonts than the last guy, and they never ever look outside at the sky to see if it is really falling like they just said on CNBC.
For what it’s worth, SemiAccurate doesn’t read these people, doesn’t watch cable financial news, does its own research wherever possible, and writes under a skylight. Actually looking at the sky to see if it’s falling, seemingly a firing offense on Wall Street, is just a matter of sending our gaze a few degrees higher every so often. We looked. As of this writing, it is still in place. This is the long way of saying that while we see some of what they do, we certainly don’t draw the same conclusions that they do, much less fathom how they got from A to B with the data at hand. There were production problems and as soon as they were dealt with, demand returned to where it had been. Components orders had a hangover, but this being the real world instead of a theoretical order screen, that is actually the expected outcome. Physical parts take time to source materials for, make, test, and ship.
That brings us to the latest set of supply chain numbers that some are touting as the end of the world. The author has heard this as everything from the iPhone 5 having nothing new to offer to Asian tastes moving on to different things. “Apple is everything from behind the times to passe”, “Asia only cares about big screens”, and “iOS is outdated and clunky”, have all been touted as reasons for the “Apple Troubles”. A single supply chain check somehow leads to the conclusion that a multi-billion dollar market just evaporated overnight never to return. Apple is in fact done for according to this brain trust, and anyone who says otherwise is missing the obvious. SemiAccurate however thinks they are woefully lacking in technical knowledge.
At this point the only question you should be asking is if the stock slide is real or the groupthink is reinforcing the bad news as it goes, essentially making the truth that the industry needs to be right. Are there real data points out there? Was Forbes reporting that Verizon, the largest carrier in the US, had 63% of it’s smartphone activations in Q4/2012 on Apple products, 50%+ of the total being iPhone 5’s lost on everyone? AT&T had a trifling 84% of it’s Q4 smartphone activations from Apple, a number seemingly too small for Wall Street to bother with. Anecdotally Apple only had the top activations at three of the four main US carriers, how could anyone interpret that as good news in light of what the component channel is saying?
SemiAccurate says quite simply, “Go look outside you nitwits”, but what do we know? Citibank cut its rating on Apple in January because of increased production leaving an inventory glut coupled with lowered demand. No one there seems to have asked why this happened. So SemiAccurate asked. The rumored China Mobile launch of the iPhone is said to be delayed a bit, and China Mobile’s subscriber base is more than 600 million, roughly double the total US population. If something happened there, likely given the recent Chinese government spat with Apple, would that have affected inventory? If the rumored launch was pushed out a quarter or two, what would the the effects be?
Normally in a situation like this a company like Apple would sell the phones to another carrier in other markets be it in the same country or even another country with little more than a BIOS update. One serious technical problem with this in China is that they use a special cell phone standard, TD-LTE or TD-SCDMA. These are in use all of nowhere else in the world so any phones built for China Mobile are incompatible with every other cellular infrastructure in the rest of the world. China Mobile has about two thirds marketshare in China, the plethora of others are a tiny fraction of the remaining third each. Two of the smaller carriers have the iPhone now, but if China Mobile got cold feet for technical, political, or just marketing reasons, anyone think that the other two carriers could absorb the inventory glut before the iPhone5 was badly obsolete?
SemiAccurate has no data on what if anything happened with China Mobile other than the strong rumors of a launch then a delay. If these rumors are true, they would easily account for the “sharp increase in iPhone 5 production during the fourth quarter” that Citibank saw. They don’t seem to have realized the underlying technical problems that surround Chinese phone standards if they did tie the two points together.
In the end, the problem for Apple seems to have less to do with anything real than the lemming-like group-think. Apple did have production problems, but they were solved. The numbers did drop with their inability to supply, but they came back strong. Component supplies can be a lagging indicator too, but no one seems to have taken that into account either. The cherry on the top is the lack of technical understanding surrounding the tech. If a China Mobile launch was the reason for the Q4 build up, it could also be the reason the for inventory glut too with a quarter or two of delay. Those phones can’t be sold elsewhere so they sit in inventory, the data fits too well to be casually discounted.
In any case, SemiAccurate doesn’t see the sky falling because we looked outside and saw that it wasn’t. Wall Street seems to be hell bent on finding negative data points and ignoring positive ones in an effort to one-up the last guy who was quoted somewhere. It is a stupid, destructive, and short-sighted mindset that leads to borderline farcical conclusions. While we have no idea how Apple did in Q1 or will do in Q2 of 2013, all the data we can gather is diametrically opposed to what esteemed institutions see. We can’t say Apple will hit one out of the park, but all of the data we see sure looks like they are, at the very least, doing very well. As the only one that appears to be going out on a limb at this time, I guess we will know who is right in a few short weeks.S|A
Note: As we state in our About Us page, we would like to re-iterate that the author owns no stock in Apple or anyone else, has never owned any, nor has any plans to ever do so. The same is true for the editor and owners of this site. We are far more interested in technology and the science itself than the stock market plays, we expect to retire poor but with our senses of humor intact.